By its very existence, big cable is a barrier to new broadband infrastructure investment by potential competitors, according to Nancy Rose, a senior administrator at the federal justice department in charge of economic analysis. In a speech she gave to the American Bar Association last month, and posted on the BTIG Research blog, she said that the buying power of big cable companies gives them an advantage in creating video packages that would-be competitors can’t overcome…
There was certainly some suggestion made to us that broadband investments are less attractive, at least at present, if you can’t also get access to low cost video programming and put together a cable-like package…to offer customers. And that’s in part because it’s a way that many consumers are buying a bundle of cable and broadband from their provider. And so it might even be that by discouraging online video, you’re also discouraging broadband buildout and competition in that market down the road.
That same market power also gives big Internet service providers the ability to act as gatekeepers for new online content providers, according to the blog post’s author Richard Greenfield. He said last year’s Netflix interconnection debacle was the aha moment for regulators…
The interconnection point illustrates how significant a mistake the ISPs made in charging Netflix last summer and how that has now informed anti-trust policy affecting the cable industry.
The bottom line, according to Greenfield, is that Charter Communication’s pending purchase of Time Warner Cable and Bright House Networks – which would give it 30% of the national cable broadband market but 50% of California’s – is in trouble. Although the size is a bit smaller than the defunct Comcast-Time Warner-Charter mash-up, he believes the same problems of scale exist with Charter’s current deal and federal regulators will kill it too.
The companies remain committed to completing their previously announced transaction on the same economic and governance terms. The companies have extended their good faith negotiating period for an additional 30 days under the previously announced agreement for Charter to acquire Bright House Networks…for $10.4 billion. Bright House is the sixth largest cable operator in the United States, and serves approximately 2 million video customers in central Florida including Orlando and Tampa Bay, as well as Alabama, Indiana, Michigan, and California.
The Californian systems are in Kern County, not so far from Charter’s existing franchise areas in San Luis Obispo County. Assuming the companies get it all together in the next month, they’ll presumably have to ask the California Public Utilities Commission for permission to transfer control of Bright House’s regulated telephone business in the state, along with the associated certification.
Charter, the No. 4 U.S. cable operator, clinched the deal with Bright House in March contingent on completion of Comcast Corp’s $45.2 billion merger with Time Warner Cable Inc. Comcast walked away from the Time Warner Cable deal last month because of antitrust hurdles.
Charter’s agreement with Bright House includes a 30-day provision for them to renegotiate a deal in this event. That period lapses in about two weeks. Even though negotiations are still formally continuing, Bright House, which is controlled by the Newhouse family, owner of magazine publisher Conde Nast, now believes it best to remain independent, [Reuter’s unamed sources] said this week.
Had the original deal gone as planned, Comcast would have ended owning all of Charter’s systems in California, with the exception of those around Lake Tahoe, which are tied to the Reno market. The assumption was that one way or the other, Comcast would have ended up with the Bright House systems in the San Joaquin Valley too.
None of that will happen, at least for now. With everything reverting to the 2013 status quo, the next round of dealmaking – or attempted dealmaking – is ready to begin.
Bright House and Charter are already wrapped up in the proposed Comcast-Time Warner merger. Via a series of market swaps, Comcast would get all of Charter’s systems in the state, except for the one at Lake Tahoe. Bright House has a scattering of systems in Kern County. Because of Bright House’s corporate ties to Time Warner, the thinking has been that Comcast would absorb those systems too, if the merger is approved.
That assumption hasn’t changed. Even though Charter included the Kern systems in its map of what it will keep in a post-mega merger/swap world, the logic of selling or trading them to Comcast is inexorable. It’s a fair bet that any upgrade or other requirements the California Public Utilities Commission imposes on Comcast would apply to the Bright House systems too.
But approval – by the CPUC or federal agencies – isn’t certain. The way the Bright House buy out is structured, it’ll be cancelled if the bigger deal doesn’t go through. But that doesn’t mean it’ll go away completely. Plan B has Charter turning around and buying Time Warner, as it tried to do before Comcast stepped in. Or so the speculation goes. Rolling Bright House into that scenario as well isn’t much of a leap.
Regardless of how the pieces eventually fit together, regulators, like the CPUC, will have to bless the result. So upgrade requirements, particularly for the Charter systems that lack broadband capability, would still be on the table. A future where two merely large companies split the state might not be ideal, but it’s better than handing a surly giant near-monopoly rights to California.
Western Kern County is oil country. Once you hit the foothills of the central California coast range, agriculture stops and oil production begins. Several small towns along State Route 33 support the industry and its workers. The largest is Taft, with a city limits population of around 9,000 people in about 2,300 households, plus adjacent unincorporated neighborhoods.
By California Public Utilities Commission standards, nearly all of Taft (and Maricopa to the south) has adequate broadband service: the local cable company, Bright House, offers up to 90 Mbps download and 10 Mbps upload speeds. But the local telco is Verizon – one of the legacy GTE systems it acquired – which doesn’t even offer 1990s-grade DSL service.
As a result, the cheapest Internet service plan that’s available is about $55 per month for 1 Mbps down/512 Kbps up, once tax and modem fees are figured in and the new customer discount ends. Exact adoption figures aren’t available, but FCC data indicates that fixed Internet service adoption in the region is in the 20% to 40% range, about half the rate for Kern County as a whole and maybe a third of the overall rate in California.
Lack of access to home Internet service is a particular problem for local educators who want students to be able to do their homework and get access to electronically published textbooks and other resources.
Yesterday, I conducted a community broadband planning workshop in Taft. About 50 people attended – a bigger turnout than you’d expect even in much larger cities. Representatives from Bright House were there and participated in a very helpful way. Verizon didn’t send anyone, though. Next steps are to come up with a plan to upgrade local infrastructure and drive greater in-home adoption. The community has resources, including middle mile fiber, motivated local government agencies and educational institutions, and several large companies, including oil giants. It’s a good start.